2018 (11) TMI 1167 - AT - Income Tax

Disallowance u/s 14A - expenditure incurred in relation to income which does not form part of total income shall be disallowed - Held that - It is settled position of law that the provisions of section 14A can be applied to quantify the expenses in relation to exempt income. Since the exempt income is Nil, section 14A will not apply. The Rule 8D can be applied only when there is difficulty in finding the expenditure relating to exempt income. The provisions of section 14A and Rule 8D will not apply to the present case. In the case under consideration, after going through the financial statements filed by the assessee, we find that there is no dividend income received by the assessee. Therefore, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Application of Rule 8D for disallowance computation.
3. Interpretation of provisions regarding exempt income.
4. Consideration of grounds of appeal in appellate order.
5. Condonation of delay in filing Cross-Objection (CO).

Issue 1: Disallowance under section 14A of the Income Tax Act:
The Revenue appealed against the CIT(A)'s order deleting disallowance under section 14A amounting to ?58,92,004. The AO observed that the assessee had investments in exempt dividend income and finance costs. The AO invoked section 14A and Rule 8D for disallowance computation. The CIT(A) deleted the disallowance. The Tribunal upheld the CIT(A)'s decision as there was no dividend income received by the assessee, rendering section 14A inapplicable due to exempt income being nil.

Issue 2: Application of Rule 8D for disallowance computation:
The AO computed the disallowance under section 14A r.w. Rule 8D based on interest expenditure and average value of investments. However, the CIT(A) deleted this disallowance, and the Tribunal upheld it as there was no dividend income received by the assessee, making section 14A and Rule 8D inapplicable.

Issue 3: Interpretation of provisions regarding exempt income:
The Tribunal clarified that section 14A can be applied to quantify expenses related to exempt income. However, since the assessee had no exempt income, section 14A did not apply. The Tribunal emphasized that Rule 8D is applicable only when determining expenses related to exempt income is challenging. Thus, the provisions of section 14A and Rule 8D were deemed inapplicable in the case.

Issue 4: Consideration of grounds of appeal in appellate order:
The assessee raised objections in the Cross-Objection (CO), challenging the invocation of section 14A and interest expenditure disallowance. The Tribunal admitted the CO for adjudication after condoning the delay in filing. However, as the Tribunal upheld the CIT(A)'s decision in the revenue's appeal, the CO filed by the assessee was dismissed as infructuous.

Issue 5: Condonation of delay in filing Cross-Objection (CO):
The Tribunal condoned the delay of 92 days in filing the CO by the assessee, considering the reasons provided for the delay as bona fide. The CO was admitted for adjudication, but it became infructuous as the Tribunal upheld the CIT(A)'s decision in the revenue's appeal.

This judgment addressed the disallowance under section 14A of the Income Tax Act, the application of Rule 8D for disallowance computation, interpretation of provisions regarding exempt income, consideration of grounds of appeal in the appellate order, and the condonation of delay in filing the Cross-Objection. The Tribunal upheld the CIT(A)'s decision to delete the disallowance as there was no dividend income received by the assessee, making section 14A and Rule 8D inapplicable. The Tribunal also admitted and dismissed the Cross-Objection filed by the assessee after condoning the delay in filing.